Risk is good, as long as you know the odds

Live: Thursday, Feb. 8, 2018

I entered no positions and exited none. I considered entering a bear call spread on one of the two fossil fuel ETFs that I track: UNG and OIH, but declined both trades without a full analysis. UNG has a very low implied volatility percentile, and OIH has bid/ask spread too wide to meet my standards.

2/8 – 1:45 p.m. New York time

Of the 44 exchange-traded funds that I track, only six remain uptrending on the daily chart using the Fisher Transform (FT) metric. Three are contrarian funds — if their underlying goes up, they go down, and vice versa: VXX, SPXU and TBT. The remaining three are XHB (the home builders), XRT (retail) and UUP (the U.S. dollar).

Of the 38 ETFs that are downtrending on the daily chart FT, X show a mismatch with their uptrending 3-hour FTs, a smaller level of granularity. They are the volatility measure VIX, the metals (GDXJ, GLD, SLV and NUGT), bond and bond-like funds (IEF, TLT and the utilities, XLU), and the U.S. dollar/Euro exchange (FXE).

This pattern puts my GLD position on watch, although I shall continue to hold it unless the daily-chart FT also turns uptrending.

That leaves 30 ETFs that are downtrending on both the daily and 3-hour FT measures. An embarrassment of prospects:

Symbol

IV_Percentile

Market Cap

DIA

86.96

16,591 M

IWM

82.40

32,324 M

QQQ

98.11

57,053 M

SPY

64.91

236,147 M

IYR

97.72

3,116 M

KRE

100.00

3,702 M

OIH

100.00

1,674 M

XBI

100.00

2,278 M

XLB

80.75

5,005 M

XLE

100.00

6,423 M

XLF

100.00

25,282 M

XLI

100.00

11,400 M

XLK

96.63

23,667 M

XLP

74.16

7,137 M

XLV

88.55

12,421 M

XLY

85.21

11,233 M

XME

46.53

506 M

XOP

89.25

412 M

UNG

0.00

558 M

LQD

100.00

35,547 M

DXJ

100.00

7,961 M

EEM

100.00

41,325 M

EFA

100.00

77,777 M

EWI

71.85

729 M

EWW

97.71

1,068 M

EWY

100.00

4,031 M

EWZ

60.69

8,206 M

FXI

100.00

4,178 M

RSX

85.35

2,054 M

Long story short, the U.S. stock markets are downtrending, along with some foreign markets. I have exposure to the blue chips through my position in QQQ. I’m lacking exposure to fossil fuels (UNG, OIH). Oddly, corporate bonds (LQD) are unreservedly downtrending, whereas government instruments are showing a mismatch between levels of granularity.

2/8 – 1:05 p.m. New York time

I have no prospective earnings plays using options. I’m disregarding potential shares plays; they are by definition bullish, and the continued fall of the markets after a 50% retracement is a classic pattern used in Elliott Wave analysis that convinces me that the downtrend is more than a passing event. I shall be moving funds from my shares account over to an options account, where they can be used for downtrending positions.

2/8 – 10:50 a.m. New York time

I exited no positions in the opening bell’s first rush. My two shares positions, HUN and MTX, which I entered on Wednesday, have moved to a downtrending posture on the 3-hour Fisher Transform (FT) metric. If the one-day FT follows, then I shall exit them.

By Tim Bovee, Portland, Oregon, Feb. 8, 2018

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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